Journal of Organizational Change Management

Transformational leadership and post-acquisition performance in transitional economies

Verica M. Babi# Sla#jana D. Savovi# Violeta M. Domanovi#
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Verica M. Babi# Sla#jana D. Savovi# Violeta M. Domanovi# , (2014),"Transformational leadership and post-
acquisition performance in transitional economies", Journal of Organizational Change Management, Vol. 27
Iss 6 pp. 856 - 876
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JOCM
27,6
Transformational leadership and
post-acquisition performance in
transitional economies
856 Verica M. Babić, SlaXjana D. Savović and
Violeta M. Domanović
Department of Business Economics and Management,
University of Kragujevac, Kragujevac, Republic of Serbia
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Abstract
Purpose – The purpose of this paper is to explore the relationships between transformational
leadership and post-acquisition performance, introducing into the analysis the mediating effect of
employee attitudes toward changes, in the specific context of a transitional economy.
Design/methodology/approach – The data were collected from 208 employees (including
91 managers) from ten acquired companies in Serbia. Using exploratory factor analysis, two dimensions
of transformational leadership were identified in the context of a transitional economy: the first one
refers to inspiring and stimulating the employees, and the second dimension refers to responding to
employee problems. Multiple regression analysis was used to test the research hypotheses.
Findings – The results of the analysis indicate that inspiring and stimulating employees has an
indirect impact on post-acquisition performance through the mediating effect of employee attitudes
toward changes, whereas responding to employee problems has both direct and indirect impacts on
post-acquisition performance.
Practical implications – The results of study may be significant for managers involved in the
processes of mergers and acquisitions and may aid them in obtaining adequate levels of employee
commitment and trust, which are needed to achieve challenging goals and to improve post-acquisition
performance.
Originality/value – The research of the mediating effect of employee attitudes on post-acquisition
performance contributes to a better understanding of the relationships between transformational
leadership and post-acquisition performance. Research in transitional economies related to subject
matter is limited, while in Serbia in particular, there is no prior empirical work on the impact of
transformational leadership on post-acquisition performance.
Keywords Transformational leadership, Employee attitudes, Organizational change,
Post-acquisition performance, Transitional economies
Paper type Research paper

Journal of Organizational Change
Management
Vol. 27 No. 6, 2014
pp. 856-876
r Emerald Group Publishing Limited
0953-4814
DOI 10.1108/JOCM-02-2014-0028
Introduction
In attempting to gain competitive advantage, companies may undertake acquisitions
through which they can diversify their activities, enter new markets, introduce new
product lines and expand their knowledge base. Acquisitions are complex and often
fail to reach their desired potential. In aiming to discover why some mergers and
acquisitions (M&A) perform poorly, researchers often emphasize the importance of the
human factor (Cartwright and Cooper, 1993; Buono and Bowditch, 1989; Aguilera and
Dencker, 2004; Teerikangas, 2012). The inability of employees to predict the influence
This work was supported by the Ministry of Science and Technological Development of the
Republic of Serbia as part of research project No. 41010, titled “Pre-clinical testing of bioactive
substances,” subproject: “Management and Marketing Research as a Support to the Interdisciplinary
Project Realization.”
 of M&A on their jobs and careers (Marks and Mirvis, 1986) raises the levels of Transformational
anxiety and uncertainty in employees, leading to counterproductive behavior (Elsass leadership and
and Veiga, 1994; Guerrero, 2008). Therefore, human resources must be adequately
managed during post-acquisition integration to avoid negative effects on performance. post-acquisition
Transformational leadership plays a key role in the process of human resources performance
management during post-acquisition integration.
Many studies have attempted to investigate empirically the relationship between 857
transformational leadership and performance (Bass, 1999; Judge and Piccolo, 2004;
Menges et al., 2011; Paulsen et al., 2013; Carter et al., 2012; Braun et al., 2013). Little
attention, however, has been given to the research of the relationship between
transformational leadership and post-acquisition performance (Nemanich and Keller,
2007), especially relationship among transformational leadership, employee attitudes
toward changes and post-acquisition performance. Additionally, the literature on the
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problems of managing post-acquisition integration is dominated by studies carried

out in developed economies. Research related to transitional economies is still very
limited, although the challenges of managing post-acquisition integration are more
serious than those in developed economies, taking into account the unstable
institutional context (Meyer, 2002). Further, only few studies researched the importance
of transformational leadership on lower hierarchical levels (Seo et al., 2012; Carter et al.,
2012). The present study strives to address this research gap by elaborating on the
links between transformational leadership (especially at lower hierarchical levels) and
post-acquisition performance while introducing the mediating effect of employee
attitudes toward changes, in the specific context of a transitional economy.
Our study contributes to the transformational leadership, M&A and organizational
change literatures in four ways. First, the results of the study expand the knowledge
base and attempt to fill the gap in the literature by combining three highly studied, yet
infrequently linked, aspects of organization: transformational leadership, employee
attitudes toward changes and post-acquisition performance. Second, the study
makes an important empirical contribution to the identification of the dimensions
of transformational leadership and their relevance in the context of a transitional
economy. Third, the study highlights the importance of transformational leadership
at lower hierarchical levels, especially during radical organizational changes, such as
acquisition. Fourth, the study improves our understanding of the relationship between
transformational leadership and post-acquisition performance in transitional
economies, by testing the mediating impact of employee attitudes toward changes.
Additionally, our study has practical implications in that the results may be
used to provide important guidelines for managers involved in M&A processes in
transitional economies to aid them in obtaining adequate levels of employee
commitment and trust.
This paper initially focusses on theoretical considerations related to transformational
leadership, employee attitudes toward changes and post-acquisition performance, which
served as the basis for the formulation of the hypotheses. Next, the research methodology
is described by explaining the research sample, the methods of measuring independent
and dependent research variables, the applied statistical methods and the preliminary
analyses carried out. Thereafter, the results of the research are presented, followed by a
discussion and critical evaluation of the results in accordance with previous theoretical
considerations. The theoretical and practical contributions of the research results are
emphasized. The inevitable limitations of the study are stated, and recommendations
and suggestions for future research are set out.
 JOCM Theory and hypotheses
27,6 Transformational leadership
Transformational leaders give support to subordinates through their charisma (an
idealized influence), communicate a vision that is attractive and inspiring (inspirational
motivation), encourage creativity and innovation within the organization (intellectual
stimulation), and respond to employees’ needs and problems (individual considerations)
858 (Bass, 1999). Using their charisma, leaders inspire employees, provide confidence and
represent a role model (Waldman and Javidan, 2009). Inspirational motivation aims to
create a desire for excellence and an acceptance of change with enthusiasm and trust
(Sitkin and Pablo, 2005). Intellectual stimulation promotes intelligence, rationality and
careful problem solving. An individual consideration is the degree to which a leader pays
attention to employees’ needs, acts as a mentor to employees and responds to employees’
problems ( Judge and Piccolo, 2004).
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As formulated by MacKenzie et al. (2001, p. 118) transformational leadership

involves “fundamentally changing the values, goals, and aspirations of followers,
so that they perform their work because it is consistent with their values, as opposed to
the expectation that they will be rewarded for their efforts.” Transformational leaders
offer a purpose that transcends short-term goals and focusses on higher order intrinsic
needs (Judge and Piccolo, 2004). Kuhnert and Lewis (1987, p. 653) noted that
transformational leadership “is made possible when a leader’s end values (internal
standards) are adopted by followers thereby producing changes in the attitudes, beliefs,
and goals of followers.” Transformational leaders visualize a future that differs from the
existing state and inspire employees to work on the actualization of such a future
(Nemanich and Keller, 2007). Having the capabilities and skills that motivate employees
to think in a new manner, transformational leaders destroy existing paradigms and
create new ones (Savović, 2012). Leading a critical mass of employees through a period of
great uncertainty, transformational leaders are required to maintain the continuity
of operational activities and teach their employees a new behavior pattern (Babić and
Savović, 2009).

Post-acquisition performance
Strategic performance measurement enables a company to align its business activities
with its strategy and to carry out performance monitoring toward achieving its strategic
goals (Kennerley and Neely, 2003). The choice of suitable performance measures
is particularly important in interdisciplinary areas such as M&A, where different
performance measures can be applied. There is no agreement in the literature with
respect to the best way of measuring acquisition successes, nor is there agreement
with respect to the phase of the process in which measuring should be done. Analyzing
88 empirical studies carried out in the period from 1970 to 2006, Zollo and Meier
(2008) identified 12 approaches to measuring M&A successfulness. In their analysis of
pre-acquisitions yields, 41 percent of the studies used methodology based on the
share price change, and 28 percent used the accounting-based performance measures.
The other evaluation methodologies related to measuring post-acquisition productivity
and operating efficiency, revenue enhancement and customer satisfaction.
Zollo and Meier (2008) found that the majority of the published studies on M&A
performance can be classified into three groups. In the first group, the researchers
relied on accounting-based measures when evaluating M&A performance (Ravenscraft
and Scherer, 1987; Healy et al., 1992; Papadakis and Thanos, 2010). The second group
used measures based on stock price change (Sudarsanam and Mahate, 2003; Tuch and
 O’Sullivan, 2007). Finally, the third group of researches relied on assessments received Transformational
from managers or experts regarding the degree of achievement of initially set goals leadership and
(Datta, 1991; Homburg and Bucerius, 2006). Recently, new performance measuring
models have been developed that help in measuring intangible assets and link human post-acquisition
resources management practices with a company’s economic value (Chenhall performance
and Langfield-Smith, 2007). This new approach to measuring performance calls for
the application of a set of financial and non-financial criteria that are aligned 859
with company goals and that should be changed in accordance with changes to the
company and its environment. Domanović (2013) point out that all performance
measures should be communicated clearly and should be relevant and reliable
so that managers could receive useful information for making decisions.
Schoenberg (2006) asserts that the different M&A performance measurements mean
that studies in this field have a dilemma when selecting an adequate performance
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benchmark.

Transformational leadership and post-acquisition performance

Through the provision of necessary resources and help, transformational leadership
affects the development of feelings of acceptance and security among employees,
therefore increasing their commitment to their work and to achieving
challenging goals, thus fulfilling important preconditions for the improvement of
post-acquisition performance. Transformational leaders has represent agents of
change, which, through a powerful vision of the future, contribute to changing the
existing state, thus stimulating employees to face new challenges, make additional
efforts and execute tasks more efficiently (Nemanich and Vera, 2009). Transformational
leaders recognize the need for change, create and share a convincing vision
with their employees, direct them and facilitate the process of adapting to changes,
and inspire them to achieve challenging goals (Carter et al., 2012). Transformational
leaders alter reality by moving the borders of the possible and, with the power
of their will, encourage their employees to perform complex and challenging
tasks.
Another way in which transformational leadership can influence the improvement
of post-acquisition performance is the one of supporting the employees by direct
managers. Certain studies (Seo et al., 2012; Carter et al., 2012) stress the significance of
transformational leadership at lower hierarchical levels. Given the fact that first-level
managers are in close contact with employees, it is possible for them to “listen to their
concerns and help them address problems” (Seo et al., 2012). Carter et al. (2012) point
out that direct managers are more likely to engage in unscheduled, face-to-face
employee conversations. Through such interpersonal exchanges, employees become
motivated and committed to achieving organizational goals, which will affect the
improvement of post-acquisition performance.
Some studies have investigated the impact of transformational leadership and
company performance (Garcia-Morales et al., 2008; Wang et al., 2011; Paulsen et al.,
2013). The study by Garcia-Morales et al. (2008) confirmed that transformational
leadership contributes to the improvement of organizational performance. Wang et al.
(2011) found that task-oriented leadership behavior has a direct impact on company
performance, whereas the impact of relationship-oriented leadership behavior is
indirect. Paulsen et al. (2013) found that, during periods of change, transformational
leadership affects team innovation by promoting an individual’s identification with the
team and by building a creativity-supportive climate.
 JOCM Therefore, in accordance with all of the abovementioned results of research carried
27,6 out in this field, we expect that transformational leadership has a positive impact on
post-acquisition performance:

H1. In the context of acquisitions, transformational leadership, through inspiring

and stimulating employees and through responding to their problems, has a
860 positive influence on post-acquisition performance.

Transformational leadership and employee attitudes toward changes

Numerous studies have focussed on employee behavior, on understanding the way
employees perceive the processes of change and on how employees respond to these
processes (Marks and Mirvis, 1986; Ivancevich et al., 1987; Kavanagh and Ashkansasy,
2006). Marks and Mirvis (1986) mention the “merger syndrome,” which occurs when,
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because of inevitably changed conditions after an M&A, employees react in a stressful

way, thus negatively influencing interpersonal relationships. Concern for one’s job
security, worry about one’s personal future and the need to protect one’s status can all
influence employees’ involvement in political maneuvering, leading to destructive
competition, which negatively affects the company’s performance (Myeong-Gu and
Hill, 2005). Because of the loss of the existing structures and the insufficiently
developed new structures during the early phase of integration, employees may
have negative perceptions of the acquisition, which makes their adaptation to the new
situation more difficult and leads to decreased commitment to the new company
(Schweizer and Patzelt, 2012). Although for the most part the literature highlights
the negative reactions of employees to M&A, Teerikangas (2012) also points out the
possibility of employees’ positive attitudes toward changes. In a study that included
acquisitions conducted by Finnish multinational companies, Teerikangas (2012)
investigated employees’ reactions in the pre-acquisition phase and concluded that,
in the majority of the researched companies, the employees had a positive attitude
toward the upcoming acquisitions. The reason for this positive attitude is that they
perceived the acquisitions as opportunities, rather than threats, given the fact that the
target companies were aware of the necessity of carrying out changes, simultaneously
recognizing the attractiveness of the acquiring company.
Whether employee attitudes toward changes will be positive or negative depends
on how employees perceive their future position. Guerrero (2008) points out that, if a
post-acquisition restructuring includes the dismissal of employees, the employees will
be worried about and dissatisfied with the existing uncertain situation. Ivancevich
et al. (1987) emphasize that the effect of an acquisition on employees depends on how
the employees evaluate the overall effects of the acquisition, and that a positive
evaluation of the effects of an acquisition creates challenging possibilities for the
individual. Krug and Night (2001) attempted to comprehend what leads to employee
dissatisfaction, resulting in their leaving the company; they identified three reasons:
lack of leadership, dishonesty and a lack of morale among managers, and poor
treatment of employees by the acquiring company. Kavanagh and Ashkansasy (2006)
consider leadership to play the key role in motivating employees to accept changes
after acquisitions. Being supportive of individuals, effective leaders contribute to
changes in basic values, attitudes and beliefs, so that their employees become more
willing to accept changes and to work harder during such changes (Babić, 2001).
Certain authors emphasize the importance of the moral dimension of leadership
(Bass and Steidlmeier, 1999; Ruiz et al., 2011; Ruiz-Palomino et al., 2011).
 Ruiz et al. (2011) indicate that ethical leadership behavior causes a sense of trust among Transformational
the employees, which is significant for creating their positive attitude and increasing leadership and
their commitment to accomplishing tasks. Ruiz-Palomino et al. (2011) underline that
the ethical behavior of managers enables the creation of a “win-win” environment, in post-acquisition
which employees feel satisfied. performance
Some studies have attempted to investigate empirically the relationships between
transformational leadership and employee attitudes toward changes ( Judge and 861
Piccolo, 2004; Nemanich and Keller, 2007; Menges et al., 2011; Wang et al., 2011; Braun
et al., 2013). The study by Judge and Piccolo (2004) found that transformational
leadership has a positive and significant influence on employees’ motivation and their
satisfaction (followers’ satisfaction with the leader, followers’ motivation, and leader’s
effectiveness). Nemanich and Keller (2007) researched the impact of transformational
leadership on acquisition acceptance, job satisfaction and employee performance. The
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results of their study show that transformational leadership has a positive impact on
all dependent variables. The study by Menges et al. (2011), which included 158 companies
and 18,049 employees, confirmed the relevance of transformational leadership for the
creation of a positive climate in an organization and for the improvement of employee
performance. Wang et al. (2011) classify the behavior of transformational leaders into two
groups: task-oriented behaviors and relationship-oriented behaviors. Their study found
that relationship-oriented transformational leadership has an impact on the creation
of positive attitudes of employees toward changes. Braun et al. (2013) analyzed the
relationship between transformational leadership, trust in the supervisor and the team,
job satisfaction and team performance. Therefore, in accordance with all of the
abovementioned results of research carried out in this field, we expect that
transformational leadership affects the efficient reaction of employees, thus influencing
their positive attitude toward changes:

H2. In the context of acquisitions, transformational leadership, through inspiring,

stimulating and responding to employees’ problems, causes the positive
attitudes of employees toward changes.

The mediating role of employee attitudes toward changes

While researching the relationship between transformational leadership and company
performance, the published studies introduced various mediating variables into their
analyses (Nemanich and Keller, 2007; Garcia-Morales et al., 2008; Carter et al., 2012).
Nemanich and Keller (2007) explored the impact of transformational leadership on
acquisition acceptance, employee performance and job satisfaction, and introduced the
mediating effect of stimulating creative thinking and emphasizing clear goals.
The results of their study show that stimulating creative thinking and emphasizing
clear goals are a partial mediator of the relationship between transformational
leadership and job satisfaction. The results reveal that emphasizing clear goals is not a
mediator of the relationship between transformational leadership and performance,
whereas supporting creative thinking is a full mediator of the relationship between
transformational leadership and acquisition acceptance. The study by Garcia-Morales
et al. (2008) investigated the relationship between transformational leadership and
organizational performance, and introduced into the analysis the direct and indirect
impact of knowledge and innovation as mediating variables. The results of their study
show that transformational leadership helps to develop organizational knowledge,
contributes to the development of absorption capacity and organizational learning, and
 JOCM encourages innovative behavior, thus contributing to an improvement in
27,6 organizational performance.
Carter et al. (2012) researched the relationships between transformational
leadership, explicit reactions to changes, frequency of changes and consequences
during continual incremental organizational changes. The results of their study show
that the quality of the relationship between leader and employees is a mediator in
862 the impact of transformational leadership on employee performance. The study by
Wang et al. (2011) analyzed the effects of leadership behavior on organizational
performance and introduced the mediating influence of employee attitudes. Their
results show that employee attitudes are a mediator of the relationship between
relationship-oriented leadership behavior and company performance. Their study
focussed on the relationship between leadership behavior, employee attitudes and
organizational performance in the context of changes in general and not specifically in
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the context of acquisitions.

One possible way in which employees attitudes mediate the relationship between
transformational leadership and post-acquisition performance is through dedication of
the employees to achieving organizational goals when they are satisfied with the
support they are receiving from the leaders. If employees find themselves treated fairly
and honestly, they will most probably develop a positive attitude and behavior that is
directed toward supporting changes and be committed to achieving organizational
goals. More importantly, charismatic leadership behavior motivates the employees to
put the goals of the organization above their personal goals (Waldman and Javidan,
2009), which has a positive impact on organizational performance. Therefore, we
expect employee attitudes toward changes to be a mediator of the relationship between
transformational leadership and post-acquisition performance:

H3. In the context of acquisitions, employee attitudes toward changes are a

mediator of a positive relationship between transformational leadership and
post-acquisition performance.

Recently, economies in transition have become a visible and integral part of the global
business environment. Through the liberalization of these economies, which were, until
recently, closed and regulated economies, numerous market opportunities have
emerged, including the intensifying of M&A activities (Kale and Singh, 2012). We
tested our hypotheses in Serbia, which, as a transitional economy, represents an
environment where changes occur both at the macro level and at the micro level.
Radical changes require that companies build new capabilities and that individuals
change their routines, their interaction patterns, and – frequently – their attitudes and
value systems (Meyer and Lieb-Doczy, 2003). Such conditions create an environment
characterized by uncertainty not only for the involved companies but also for employees,
and they provide a context in which leaders must demonstrate transformational behavior
and contribute to improving company performance.

Methods
Sample and procedure
To test our hypotheses, data were collected from primary sources through field
research during the three months from the beginning of February until the end
of April 2013. The research comprises Serbian companies that were the subject of
acquisition over ten years (from 2002 to 2011). The data sources for the acquired
 companies were The Privatization Agency of the Republic of Serbia and The Securities Transformational
Commission of the Republic of Serbia. We selected and contacted 30 companies, taking leadership and
into account that the companies should be from different branches and of different
sizes. The companies were contacted by phone, and cover letters were sent to their post-acquisition
managers requesting them to approve distribution of the questionnaire. From the performance
selected 30 companies, questionnaire distribution was approved in ten companies.
The companies that approved questionnaire distribution are from different industrial 863
branches: pharmaceutical (1), cement production (1), distillation, purification and
mixing of drinks (2), milk processing and cheese production (1), production of metal
processing machinery (1), motor vehicle and engine part production (1), food, drink and
tobacco retail (1), and monetary operations (2). No single economic activity participates
in the sample more than 20 percent, which means that no single activity dominates
the others. The research was carried out in the ten companies, of which seven are
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production companies and three are in the services sector. Regarding the type
of acquisition, eight out of the ten are international (cross-border) acquisitions – the
acquiring company is from a foreign country – and two cases are domestic
acquisitions – the acquiring company is from the Republic of Serbia. Regarding
company size, the sample consists of six large, two medium-sized and two small
companies.
The sample covers 208 respondents (n ¼ 208). The questionnaires were sent to the
respondents at the beginning of February 2013. There were in total 750 questionnaires,
and 30 companies were contacted. Out of the initially sent questionnaires, 208 were
filled out (response rate of 27.7 percent). Our overview of the literature found that
the response rates in studying acquisitions are very low because of the sensitive nature
of the questions asked and the necessity of obtaining approvals for conducting
research from executive directors.
As shown in Table I, our sample comprises slightly more women (50.0 percent)
than men (43.3 percent), whereby stressing the lack of response about this socio-
demographical aspect (6.3 percent). Observed according to their age, the largest
portion of the respondents are in the group that is 36-45 years of age (32.7 percent).
The largest portion of the respondents is in the group that has over 25 years of
work experience (32.2 percent). Regarding the education level, the majority of the
respondents have secondary education (40.9 percent). In the respondent structure, 48.2
percent are in operating positions, and 45.1 percent are in managerial positions (top,
middle and operative management). Managers at the first hierarchical level (operative
management) are being dominant (70 percent) in the management structure.
The data analysis was conducted with the Statistical Package for Social Sciences –
SPSS version 20.0). We carried out exploratory factor analysis with varimax rotation.
The data for factor analysis were tested with the Kaiser-Meyer-Olkin (KMO) measure
of sampling adequacy and Bartlett’s test of sphericity. The reliability of the measure
scale was measured with Cronbach’s a coefficient. The normality of the distribution of
the research variables was tested with the Kolmogorov-Smirnov test. The significance
of the difference between the subsamples was tested with the Kruskal-Wallis test.
The hypotheses were tested with multiple linear regression.

Measures
The five-degree Likert scale was used to indicate the degree of respondent agreement
with the attitudes presented. The respondents had a choice of answers from 1 – I do not
agree at all to 5 – I fully agree.
 JOCM Variable Frequency % of total
27,6
Gender
Male 90 43.3
Female 104 50.0
No response 14 6.7
864 Age distribution (years)
18-25 2 1.0
26-35 38 18.3
36-45 68 32.7
46-55 61 29.3
455 26 12.5
No response 13 6.3
Years of work experience
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o2 3 1.4
3-5 11 5.3
6-10 32 15.4
11-15 32 15.4
16-25 51 24.5
425 67 32.2
No response 12 5.8
Level of education
Higher education (university degree) 73 35.1
Higher school education 21 10
Secondary education 85 40.9
Primary education 17 8.2
No response 12 5.8
Position
Managerial positions (top, middle and operative management) 94 45.1
Top management (1)
Middle management (27)
Operative management (66)
Table I. Operating positions 100 48.2
Sample’s characteristics No response 14 6.7

Dependent variables. We measured the Attitude toward changes variable by using six
items. The respondents answered questions related to their understanding of changes,
whether they had a positive or a negative attitude, whether they feared losing their
position or their job, and whether they were able to respond to the requirements of their
new job. Example items are “I could easily respond to the requirements of the new job,”
“My expectations from future changes were positive” and “I understood the change as
an opportunity for my career development.” The data for factor analysis were tested
with the KMO measure of sampling adequacy (KMO ¼ 0.773) and Bartlett’s test of
sphericity ( p ¼ 0.000). The factor analysis confirmed unidimensionality of scale in that
all items are grouped around a single factor that explains 57.251 percent of the total
variance. Cronbach’s a was 0.848.
We measured the Post-acquisition performance variable by using the managers’
subjective perceptions. Only the respondents holding managerial positions (general
director, middle management and operative management) answered questions related
to the evaluation of the post-acquisition performance. The total number of the
respondents was n ¼ 91. The respondents were asked to evaluate the financial and
non-financial indicators on the basis of their personal understanding of the situation in
 the company. We measured the post-acquisition performance by using nine items. Transformational
Example items are “Cost-reduction is higher than prior to the acquisition,” “Income leadership and
growth/stability is higher than prior to the takeover,” “Job satisfaction at work is
higher than before the acquisition” and “The customer base has expanded after the post-acquisition
acquisition.” The data for factor analysis were tested with the KMO measure of performance
sampling adequacy (KMO ¼ 0.906) and Bartlett’s test of sphericity ( p ¼ 0.000). The
factor analysis confirmed that all items are grouped around a single factor that 865
explains 72.868 percent of the total variance. Cronbach’s a was 0.960.
Independent variable. We measured transformational leadership by using 13 items
comprising the dimensions of inspirational motivation, idealized influence, intellectual
stimulation and individual consideration, on the basis of a modified Multifactor
Leadership Questionnaire (Bass and Avolio, 2000). The respondents answered
questions related to whether the management had shown leadership behavior, whether
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they inspired the employees and whether they provided the employees with relevant
information and helped them to overcome problems. The data for factor analysis were
tested with the KMO measure of sampling adequacy (KMO ¼ 0.923) and Bartlett’s test
of sphericity ( p ¼ 0.000). The factor analysis resulted in two new factors (see Table II),
which together explain 76 percent of the total variance. Factor 1 (inspiring and
stimulating employees) explains 65.67 percent of the total variance. This factor
represents the following dimensions: inspirational motivation, idealized influence and
intellectual stimulation. Cronbach’s a was 0.957. Factor 2 (reacting to employee
problems) explains 10.49 percent of the total variance and is related to the individual
consideration dimension. Cronbach’s a was 0.898.
Control variables. Changes can have different effects on employees depending on
their position in the company, education level and age. For this reason, we attempted
to determine whether there are any differences in the attitude toward changes, the
evaluation of leadership behavior, and the evaluation of post-acquisition performance
depending on the position, education level and the age of employees. In addition
to the control variables that relate to the employees, a control variable related to
the company size was included. Companies are grouped into categories of large,
medium-sized and small according to the classification provided by the Serbian
Business Registers Agency.

Preliminary analyses
We tested the normality of the distribution of used research variables by applying the
Kolmogorov-Smirnov test. Because the variable distribution normality test showed
that there were statistically significant deviations from the normal distribution,
we used non-parametric method – specifically the Kruskal-Wallis test – for testing
differences between the subsamples.
We analyzed the impact of control variables (employee age, position, education and
firm size) on independent and dependent variables. The initial aim of the analysis was
to answer the question of whether there was any difference in the analyzed variables
depending on the employee age. A difference was observed in the case of the Reacting
to employee problems variable ( p ¼ 0.047) and the Post-acquisition performance
variable ( p ¼ 0.033). Furthermore, the analysis demonstrated that there are no
statistically significant differences in the analyzed variables according to the employee
position in the company ( p40.05). Neither are there statistically significant differences
in the analyzed variables according to the level of the employee education ( p40.05).
The analysis of the effect of the company size on the analyzed variables revealed that
 JOCM Factors
27,6 Statements 1 2

Factor 1: inspiring and stimulating employees

The superior managers encouraged employees to accept changes 0.865
The superior managers explained to the employees what the common vision was
866 and what the development directions of the company were 0.856
The superior managers optimistically spoke about the future of the company 0.840
The superior managers highlighted the importance and necessity of making
changes in the company 0.820
The superior managers helped the employees to understand why it is important
for the company to be acquired by another company 0.816
The superior managers served as positive examples and inspired the employees
to implement changes 0.808
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The superior managers stimulated the employees through personal example 0.743
Obtaining relevant information from the superior managers related to the future
plans helped me to overcome problems during the process of changes 0.703
The superior managers encouraged the employees to seek new ways of solving
certain problems 0.649
The superior managers stimulated innovative thinking of employees 0.634
Factor 2: reacting to employee problems
Different training programs were organized as support to the adaptation of
employees to new circumstances in the company 0.930
Table II. The training helped me in overcoming problems during the process of changes 0.906
Factor analysis of the The direct support of the managers helped me to overcome problems during the
independent variable: process of changes 0.675
transformational
leadership Source: Authors

there are statistically significant differences in the case of the Reacting to employee
problems variable ( p ¼ 0.00). Out of all the control variables, differences were observed
in the case of the Employee age and Company size variables.
We also analyzed the relationship between the control and independent and
dependent variables through correlation. Out of all the control variables, Employee age
and Company size were the only variables to correlate negatively with the Reacting
to employee problems variable (r ¼ 0.147, p ¼ 0.05 and r ¼ 0.254, p ¼ 0.01,
respectively). Given the fact that the Employee age and Company size control
variables correlate significantly with the dependent and independent variables, we
included these variables in the testing of the hypotheses. The arithmetic means,
standard deviations and correlations for all of the variables are shown in Table III.
We tested for the issue of multicollinearity by using the variance inflation factor.
The variance inflation factor values ranged from 1.01 to 2.92, indicating that
multicollinearity in our study does not represent a serious problem (Field, 2000).
Results
Table IV shows the results of our multiple regression analysis of the dependent
variables.
To test H1 and H2, we carried out a multiple linear regression to analyze the impact
of the two independent variables – Inspiring and stimulating employees and Reacting to
employee problems – on the dependent variables – Post-acquisition performance and
Attitude toward changes. In Step 1, we analyzed the influence of the independent
variables on the dependent variable Post-acquisition performance. The regression
 model explains 47.9 percent of the variance of the dependent variable (adjusted Transformational
R2 ¼ 0.479). The regression model is statistically significant (F ¼ 20.791, p ¼ 0.00). The leadership and
analysis showed that both analyzed variables make a statistically significant
contribution to the model’s explanation; however, the impact of the Inspiring and post-acquisition
stimulating employees variable on the Post-acquisition performance variable is stronger performance
867
Variables Mean SD 1 2 3 4 5 6 7 8

1. Inspiring and stimulating employeesa 3.53 0.95 – 0.666** 0.555** 0.631** 0.098 0.042 0.034 0.101
2. Reacting to employee problemsb 3.26 1.18 – 0.277** 0.645** 0.010 0.003 0.147* 0.254**
3. Attitude toward changesc 3.73 0.84 – 0.589** 0.024 0.019 0.035 0.110
4. Post-acquisition performanced 3.61 1.11 – 0.168 0.054 0.070 0.061
Employee positionse
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5. 3.37 0.74 – 0.560** 0.134 0.022

6. Employee educationf 2.78 1.54 – 0.116 0.171*
7. Employee ageg 3.36 0.98 – 0.255* Table III.
8. Company sizeh 1.43 0.73 – Means, standard
deviations (SD) and
Notes: an ¼ 203; bn ¼ 206; cn ¼ 201; dn ¼ 91; en ¼ 194; fn ¼ 196; gn ¼ 195; hn ¼ 203; *po0.05; **po0.01 correlations

Performance Attitude toward changes

B SE b B SE b

Step 1 Step 2
Inspiring and stimulating employees 0.560 0.169 0.439** 0.597 0.081 0.644**
Reacting to employee problems 0.307 0.127 0.323* 0.129 0.065 0.182*
Control variables
Employee age 0.171 0.104 0.142ns 0.012 0.055 0.014ns
Company size 0.012 0.133 0.008ns 0.012 0.079 0.011ns
R2 0.504 0.295
Adjusted R2 0.479 0.279
F 20.791** 18.998**
Step 3
Attitude toward changes 0.793 0.114 0.617**
Control variables
Employee age 0.184 0.112 0.152ns
Company size 0.087 0.134 0.059ns
R2 0.380
Adjusted R2 0.357
F 16.573**
Step 4
Inspiring and stimulating employees 0.263 0.465 0.206ns
Reacting to employee problems 0.360 0.113 0.379*
Control variables
Employee age 0.166 0.093 0.138ns
Company size 0.006 0.120 0.004ns
Attitude toward changes 0.490 0.106 0.381**
R2 0.621
Adjusted R2 0.597
F 25.856**
Table IV.
Notes: an ¼ 207; bn ¼ 91. Unstandardized (B) and standardized (b) regression coefficients are shown. Results of hierarchical
*po0.05; **po0.01 regression analysis
 JOCM (b ¼ 0.439, po0.01) than the impact of the Reacting to employee problems variable
27,6 (b ¼ 0.323, po0.05). The analysis showed that the impact of the control variables –
Employee age and Company size – on the Post-acquisition performance variable is not
statistically significant (b ¼ 0.142ns and b ¼ 0.008ns, respectively). The results of
the analysis show that H1 is completely accepted.
In Step 2 we analyzed the impact of the independent variables on the dependent
868 variable Attitude toward changes. The regression model explains 27.9 percent of the
variance of the dependent variable because the adjusted determination coefficient is
R2 ¼ 0.279. The model is statistically significant (F ¼ 18.998, p ¼ 0.00). The results of
the analysis show that the effect of both variables is statistically significant and that
the Inspiring and stimulating employees variable positively affects the dependent
variable Attitude toward changes (b ¼ 0.644, po0.01), whereas the Reacting to
employee problems variable has a negative effect on the dependent variable
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(b ¼ 0.182, po0.05). The analysis showed that the effect of the control variables
Employee age and Company size on the Attitude toward changes variable is not
statistically significant (b ¼ 0.014ns and b ¼ 0.011ns, respectively). As expected,
the leader’s support, in the sense of inspiring and stimulating employees, has a positive
effect on attitudes of employees toward changes. Contrary to our expectations, the
impact of the Reacting to employee problems variable is negative. Therefore, H2 is
partially accepted.
We follow Baron and Kenny’s (1986) procedure to test mediating effects of Attitude
toward changes in the relationship between transformational leadership and post-
acquisition performance. In addition to the previous two steps needed for testing
the H1 and H2, in Step 3 we analyzed the impact of the variable Attitude toward
changes on the dependent variable Post-acquisition performance. The regression
model explains 35.7 percent of the variance of the dependent variable (adjusted
R2 ¼ 0.357). The regression model is statistically significant (F ¼ 16.573, p ¼ 0.00).
The results of the analysis show that the variable Attitude toward changes
positively affects the dependent variable Post-acquisition performance (b ¼ 0.617,
p ¼ 0.00). The analysis showed that the impact of the control variables – Employee age
and Company size – on the Post-acquisition performance variable is not statistically
significant (b ¼ 0.152ns and b ¼ 0.059ns, respectively). The results of the analysis
show that variable Attitude toward changes has a significant effect on post-acquisition
performance.
In Step 4, we included the Attitude toward changes variable in the regression
analysis to test whether this variable is a mediator of the relationship between
leadership and post-acquisition performance. According to Baron and Kenny (1986),
the existence of mediator impact is confirmed if it comes to reduction in the influence of
independent variable on the dependent one or if the influence of the independent
variable becomes statistically insignificant in the presence of mediator variable.
By including this variable, the percentage of the description of the variability of
post-acquisition performance increased to 59.7 percent. The model is statistically
significant (F ¼ 25.856, p ¼ 0.00). After the inclusion of the Attitude toward changes
variable, the impact of the Inspiring and stimulating employees variable became
statistically insignificant (b ¼ 0.206, p40.05), whereas the impact of the Reacting to
employee problems variable only slightly increased (b ¼ 0.379, po0.05). The analysis
showed that the Attitude toward changes variable has a significant effect on post-
acquisition performance (b ¼ 0.381, p ¼ 0.00). The results of the analysis demonstrate
that the Inspiring and stimulating employees variable indirectly affects post-acquisition
 performance through the mediating variable Attitude toward changes, and the Reacting Transformational
to employee problems variable has both direct and indirect impact on Post-acquisition leadership and
performance. The variable Attitude toward changes does not mediate the relationship
between independent variable Reacting to employee problems and dependent variable post-acquisition
Post-acquisition performance since the impact of independent variable has not been performance
reduced after including the variable Attitude toward changes. This indicates the partial
mediator role of the Attitude toward changes variable (Figure 1) and, therefore, H3 869
can be partially accepted.

Summary of findings
The literature indicates that the efficient reaction of employees to changes depends to a
great extent on leadership, which can create a feeling of common understanding and
help employees to comprehend and accept the purpose of the acquisition (Sitkin
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and Pablo, 2005).

H1 was formulated to test the effect of transformational leadership on post-acquisition
performance. The results of the analysis confirm H1. Both analyzed variables make a
statistically significant contribution to the model’s explanation, although the Inspiring and
stimulating employees variable has a greater impact than the Reacting to employee problems
variable. Based on the results, it can be concluded that transformational leadership has a
significant impact on post-acquisition performance, enabling employees to become
aware of organizational problems, providing them with the necessary resources, help and
feedback to enable them to develop a feeling of acceptance and safety, which is then
reflected in their dedication and efficiency at work and on the post-acquisition performance.
The results are consistent with those derived from the relevant literature. Previous
studies (Garcia-Morales et al., 2008; Wang et al., 2011) confirm the existence of a positive
impact of the dimensions of transformational leadership on company performance.
Our research results partially confirm H2, indicating that transformational
leadership in the form of inspiring and stimulating employees has a significant
positive impact on employee attitudes toward changes. The Reacting to employee
problems dimension of transformational leadership affects the creation of negative
attitudes toward changes. An explanation for this can be found in the fact that
employees positively react to a positive impulse, in the sense that, when leaders spread
a positive mood, inspire and encourage employees and communicate optimistically
about the future, employees react to these impulses by generating a positive attitude
a
Inspiring and 0.644**
Employee attitudes
stimulating employees toward changes
0.206ns

0.381**
a
–0.182*

Reacting to 0.379*
Post-acquisition
employee problems performance

–0.004ns –0.138ns
Figure 1.
Results of the mediating
Company size Employee age
effect of employee
attitudes on post-
Notes: aThe value of  prior to analyzing the mediator acquisition performance
influence.*p < 0.05;**p < 0.01
 JOCM toward changes. In fact, the inspiring behavior of leaders is one that most directly
27,6 affects the attitudes of employees toward changes. However, when employees are faced
with everyday problems that they fail to overcome within a short period despite the
support provided by leaders, negative attitudes toward changes are generated.
In addition, when employees need to express their own attitudes toward problems and
the means to overcome them, a negative attitude toward changes is formed. This does
870 not necessarily mean that leaders do not help employees and that their behavior with
respect to reacting to employee problems does not positively affect performance, but
rather that problems intrinsically have a negative connotation, which then contributes
to the creation of a negative attitude to changes. The results of our analysis are consistent
with the results of previous studies (Nemanich and Keller, 2007; Menges et al., 2011; Wang
et al., 2011) that have confirmed a positive impact of transformational leadership on
employee satisfaction and attitudes, particularly in the case of the findings by Wang et al.
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(2011), who showed that a transformational leader’s relationship-oriented behavior

contributes to the creation of positive attitudes of employees.
H3 was formulated to test the mediating influence of employee attitudes on post-
acquisition performance. Our results partially confirm H3. The Attitude toward
changes variable is a dominant mediator of the relationship between the independent
Inspiring and stimulating employees variable and the dependent Post-acquisition
performance variable, given the fact that the impact of this independent variable
completely disappears in the presence of the mediating variable. Conversely, the
Attitude toward changes variable is not mediator of the relationship between the
independent Reacting to employee problems variable and the dependent Post-acquisition
performance variable, given the fact that, in this case, impact of the independent variable
on dependent variable has not been reduced.

Theoretical implications
Our study makes a contribution to the literature in the field of acquisitions and
transformational leadership in four important ways. First, our study combines three
aspects of organization: transformational leadership, employee’s attitude toward changes
and post-acquisition performance. Although the authors have studied these aspects
individually, very few studies included an empirical research on this relationship. Wang
et al. (2011) studied the relationship between transformational leadership, attitude toward
changes and performance in terms of changes in general; our study, however, makes a
contribution to literature in the field of acquisitions since it deals with the relationship
between three aspects of organization in terms of acquisitions.
Second, because research in transitional economies related to this problem field is
limited, and in Serbia in particular, to the best of the authors’ knowledge, no such
research has yet been conducted, this study fills the gap in the literature with respect to
the influence of transformational leadership on post-acquisition performance in the
context of transitional economies. The nature of transformational leadership in
transitional economies has been identified, which highlights the focus of
transformational leaders on inspiring and stimulating employees and on reacting to
employee problems. The first dimension of transformational leadership in transitional
economies – inspiring and stimulating employees represents the following dimensions:
inspirational motivation, idealized influence and intellectual stimulation, in original
theories of transformational leadership (Bass, 1999). The second dimension of
transformational leadership – reaction to employee problems is related to the
individual consideration dimension.
 Third, the contribution of this study is also emphasizing the importance of the direct Transformational
manager during the process of complex organizational changes. The literature in the leadership and
field of leadership points out, first of all, the role of the senior leader while the first-level
manager’s role in creating positive attitudes toward changes, as well as in improving post-acquisition
performance, has been neglected. The importance of direct leaders is to be noticed in performance
the fact that they are in a direct contact with employees and thus may have a greater
influence on employees in comparison to senior leaders. Therefore, our study among 871
with recent studies (Seo et al., 2012; Balogun and Johnson, 2004; Carter et al., 2012)
indicates the need to develop multilevel theories of change that will highlight the
significance of leadership at different hierarchical levels in the organization.
Fourth, this study’s contributions are also reflected in the tests of the mediating
impact of employee attitudes toward post-acquisition performance in the context of
acquisitions, which contributes to improving our understanding of the relationships
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between transformational leadership and post-acquisition performance.

Managerial implications
The results of our study provide important practical implications. First, in conditions
of complex changes, companies in transition economies should select individuals with
characteristics of transformational leaders and recruit hire them for management
positions. Second, the results of this study can help companies in transition economies
to realize the significance of executive education which will aim to develop the skills
of transformational leaders. Such training and education of managers, along with their
present experience (Colbert et al., 2014) will help managers to develop the necessary
level of commitment and trust in order to achieve the challenging goals.
Third, the results of this study point out that leaders should actively work on creating
positive attitude of their employees toward changes and provide the employees with all
necessary support in order to avoid their negative reactions. Leaders should have a common
vision, to inspire employees to accept changes (Bass, 1999), to share relevant information
on all relevant aspects of changes with employees (Schweiger and DeNisi, 1991). In order
support employees to adapt to the new circumstances, it is necessary to provide different
training programs (Sitkin and Pablo, 2005) and all necessary help and support in solving
their problems. Acting in this way, leader works on developing the feeling of acceptance and
safety of employees, which increases the probability of creating positive attitude toward
changes and acts toward achieving better post-acquisition performance.

Limitations of the study and recommendations for future research

One of the limitations of this study is the small sample size. Although the sample size
in the study is sufficient to facilitate reaching general conclusions, it should be
mentioned that research which monitors a large number of transactions (Chatterjee
et al., 1992; Haleblian and Finkelstein, 1999) is dominant in the field of M&A. For this
reason, future research should include a larger sample of companies. However, a large
number of researchers have analyzed M&A problems on the basis of a smaller number
of researched companies. Moreover, Bengtsson and Larsson (2012) emphasize that
analysis of a smaller number of companies is exceptionally important in the early
stages of researching into some M&A problems, but that later, in the case of an
already researched theme, this approach may offer novel observations. In addition to
the inclusion of a large sample of companies, future research may also focus on the
examination of one specific case of acquisition, which would ensure a deeper analysis
and sufficient information necessary for a detailed investigation of the impact of
 JOCM transformational leadership on post-acquisition performance. Future research should
27,6 adopt a design that will enable the studying of the issues related to transformational
leadership in different time periods, for example after an announcement of acquisition,
during the acquisition process and later, during the post-acquisition integration phase,
which would include the application of longitudinal studies. The Schweiger and DeNisi
(1991) longitudinal study, which was aimed at researching the effectiveness of programs
872 for communication with employees, was conducted in two companies, and the data were
collected at four points in time. However, longitudinal studies are difficult to carry out,
particularly on a large sample, and therefore this may present a specific research challenge.
The limitations of our study also relate to the measuring of the post-acquisition
performance, which was performed by examining the attitudes expressed by managers
who witnessed the processes of change. In M&A-related research, the accounting-based
measures, stock-market-based measures and subjective assessments of managers are
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most frequently used. The application of accounting-based measures requires making

comparisons of financial data prior to and after acquisitions, and many companies have
not shown their readiness to ensure the availability of such data. Some of the companies
in our sample were acquired over a decade ago, which made it impossible to obtain
financial reports through the Serbian Business Registers Agency (which has been
providing a centralized record of financial reports of companies in Serbia since 2005). The
method of performance evaluation on the basis of change in share prices was impossible
to apply with the companies not listed on the stock exchange that were included in the
sample. The problem of obtaining objective measures of performance determined the use
of subjective benchmarks of performance based on the understanding that subjective
measures ensure a multidimensional approach to performance, given the fact that
managers estimate both financial and non-financial indicators of performance. However,
future research should measure success by applying other methods, which rely on
financial reports, and by monitoring changes in share prices.

Conclusion
The results of our research lead us to conclude that, in the conditions of complex
changes such as acquisitions, leaders should provide their employees with the
necessary help and support. In the context of transitional economies, the necessity of
support from leaders is particularly emphasized, given the fact that employees are
faced not only with changes brought about by the process of acquisitions, which are
necessarily complex, but also with changes imposed by transition, which requires a
radical change in employees’ behavior and even in their attitudes and their system of
values. In such conditions, transformational leadership has critical importance for the
improvement of post-acquisition performance. Transformational leaders should act
inspiringly and stimulatively, which will contribute to the creation of positive attitudes
among employees toward changes and, consequently, improve post-acquisition
performance. In addition, by providing direct support and help to employees and by
responding to their problems, transformational leaders help employees to face the
challenges of change and to perform their tasks better, thus also contributing to
the improvement of post-acquisition performance.

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About the authors
Verica M. Babić is a Professor of Management and Decision Theory at the Faculty of Economics,
University of Kragujevac, Serbia. She received her PhD in Economics from the Faculty of
876 Economics, University of Kragujevac. Her current research interests are corporate governance,
entrepreneurship, knowledge management and leadership. Professor Verica M. Babić is the
corresponding author and can be contacted at: vbabic@kg.ac.rs
Dr SlaXjana D. Savović is a Teaching Assistant at the Faculty of Economics, University
of Kragujevac, Serbia, teaching an Enterprise Economics course. She received her PhD in
Economics from the Faculty of Economics University of Kragujevac. The main areas of her
research interests are mergers and acquisitions, post-acquisition integration and leadership.
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Violeta M. Domanović is an Assistant Professor of education subject Business Economics,

Faculty of Economics, University of Kragujevac, where she got a Master’s Degree in Business
Economics. She held a PhD in Economics at the University of Belgrade in the field of business
economics. Key areas of her scientific interest include performance measurement and management
and cost management.

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